tv Public Affairs CSPAN December 6, 2012 5:00pm-8:00pm EST
face the uncertainty that many will face with regard to their taxes. there is no reason that middle income families should go into this holiday season without knowing whether their taxes will go up next year. last year, democrats and republicans work together to cut nearly $1 trillion of spending. now we need to continue that bi- partisan work to cut more spending, and to if congress fails to reach an agreement under the budget control act of 2011, 1.2 trillion dollars in automatic spending cuts will take lace between 2013 and 2021. republicans and democrats agree that indiscriminate across-the- board cuts is not the right and to do at this time in our nation's history. if we trigger the automatic spending cuts and tax increases , grossed a mustard product will fall by half a percentage point
-- gross margin bottom will fall by half a percentage point. we will reverse the hard-fought gains over the past few years. we cannot afford to go backwards. instead we need a balanced and bipartisan approach. one that balances the short and long-term needs, distinguishes between foreign investments and the core investments that must be reserved, and spending that we can live without that utilizes both spending cuts and revenue increase. the first order of business should be to protect those middle income families i talked about and protecting them from a tax increase. the cbo estimates that simply extending the middle-class tax cuts would boost gdp by 1.3% and create 1.6 million jobs. let me say that again --
boosted gdp by 1.3% and create 1.6 million jobs from that tax cut we can enact. it would resolve much of economic safety for these middle-class families. the wealthiest among us can help us reduce the debt by paying more. it is encouraging to see republican members of the house and the senate speak out on the need or a deficit approach that includes raising taxes on wealthy individuals and to moving right away to ensure that 98% of families do not race a tax increase. we need to look -- do not face a tax increase. we need to look at history. what we saw in the 1990s and 2000s, there was no relationship between lower marginal tax rates for the wealthiest among us an economic growth.
first during the clinton administration, the top marginal tax rate was raised on the wealthiest individuals and the economy grew at its fastest rate in a generation. it added more than 22 million jobs. during the following eight years, the top marginal rate dax tax rate was lower, but economy never regained its strength from the reviews decade. middle-class families are vulnerable when the recession began at the end of 2007. i hope this hearing is helpful not just in this hearing, but across this country to people who are watching and waiting for congress to act. i will say more at the end about some of our members who are leaving. it is -- it has been an honor
for me to serve as chairman of this committee and also served with my friend, kevin brady, as vice chair. he has been great to work with. i hope there'll be bipartisan success in congress. i look forward to working with him as i change seats in the senate for the next congress. i am grateful to our witnesses, whom i will introduce. before i do that, opening statements. >> i think the chairman for the recognition. this is the concluding hearing from the 112th congress. ,'m behalf of the vice chair kevin brady, on behalf of republican members and myself, we wish to thank you or your services on the committee. this unique committee with
equally divided. april are used to seeing such division producing gridlock in washington -- people are used to seeing such division producing gridlock in washington, but senator casey and senator brady worked together and had bipartisan cooperation. joint economic committee has riced as a widely respected forum on debating issues. i think you, senator casey, for your leadership. i also want to recognize the retiring senator from this committee, the senator from new mexico and the senator from virginia. our first secretary of the treasury, alexander hamilton, observe energy is a leading character in good government. the president must lead in a
divided government and must not advocate his or her responsibility. president obama has the responsibility to propose a real bipartisan plan to avert the fiscal cliff that can pass both the house and the senate. withdrawing from the recommendations of the simpson- bowles commission, the president could propose a plan that would not only avert the so-called fiscal cliff, but also help us avert the yawning fiscal of this ivory for me -- it this goal -- fiscal abyss. if president obama were to offer such a plan, republicans would act favorably. going over the cliff is unnecessary. as it has been observed in "the wall street journal," the president is boxing in the republicans. he is offering them a deal they cannot accept.
first, the president has repeatedly called for a balanced solution involving both revenue and less spending. what is obvious to the most casual observer is that this plan is not a balanced. the fiscal cliff involves nearly four dollars of anticipated revenue from higher taxes for every dollar of spending cuts, yet the president wants more revenue and fewer spending cuts. if we fell off the cliff, his plan calls for another round of stimulus spending. you have got to be kidding me. lackshe president's plan is any reform in our entitlement system. the unrestrained growth in entitlement system is driving deficits and driving the debt even higher than the percentage of our gdp. it is estimated to be as high as $128 trillion.
even if they confiscate all of the income that excesses $1 million, we cannot pay for the entitlement commitments that the federal government has made. we have made promises to ourselves that we simply cannot keep. without some sensible entitlement reform, our credit rating will be downgraded again. we will become a country that none of us recognize. secondly, fiscal plans failed to achieve their government budget deficit or debt reduction goals. dr. hassett has examined fiscal plans in other countries. on average, unsuccessful plans proposed an increase in revenue and spending cuts. moreover, the higher revenues in successful plans were generally drawn from non-tax sources and avid sales and
adjusted fees for government services. thirdly, the government argues that the 2001 tax cuts are extended, raising tax rates on the top 2% will not harm the economy because it will not affect consumption expenditures. however, analysts have analyzed the combination of expectation of the 2001 tax reduction for the top 2% and the extension of the medicare act and capital income. under the president's preferred tax policy, the top rate would go from 35% to 49.9% for ordinary income -- and for ordinary income from 15% to 25%. the long-term consequences of president obama's tax policies would have a profound and negative affect.
capital stock would be dollar -- would fall. fewer jobs and lower wages resulting in higher taxes would harm the middle class. data reveals three important facts of high income earners. the taxes on the wealthy raise as much faster than on everyone else during economic booms, but they also fall much faster during economic bust. people bit more income when tax rates are low and not when they are -- report more income when tax rates are low and not when they are high. there are better ways to increase federal revenues than hiking tax rates.
congress could enact a program of tax reform that would lower rates and eliminate interest reductions. the president could open up more federal lands and offshore areas for energy exploration. his administration could take a more balanced approach to new regulations. economic growth can help solve our fiscal problems if the economy had grown at the percentage as it has done in the past. the treasury could have collected an additional 650 billion dollars in fiscal year 2012. the deficit that would have fallen. still bad, but remarkably better than where we find ourselves today. republicans stand ready to work with president obama for a
balanced and bipartisan solution. so far, no evidence of that. let's create a long-term solution that does not burden individuals and gives businesses optimism to go forward and invest in the american economy. then the economy can grow for all citizens. i look forward to the testimony of our witnesses. >> thank you. i will introduce our two witnesses. dr. zandi is the chief economist at moody's analytics. he looks at macro racquets and public policy. he is the influential source of policymakers and businesses and journalists. recently he published a report assessing the challenges of approaching the fiscal cliff and the most effective way to achieve long-term, fiscal stability. he received his phd from the university of pennsylvania. that will be a recurring theme
in these introductions. [laughter] dr. zandi, thank you for being here. dr. hassett is the director and senior fellow at the american enterprise institute. he holds a phd from the university of pennsylvania. his research includes the u.s. economy, tax policy, and the stock market. he is previously a senior economist at the board of governors at the federal reserve system. he went to that graduate school of business at columbia university. he has worked for both the george w. bush and clinton administrations. both of you went to the same university. i'm sure you can agree on everything today. dr. zandi first.
>> thank you for the opportunity. it is an honor to be here with heaven, a good friend of mine. let me say -- kevin, a good friend of mine. let me say that these are my own personal views. lawmakers have to resolve three issues -- first, the fiscal cliff. second, raising the treasury debt ceiling, which as you know is becoming an issue rarely soon. third, achieving long-term fiscal sustainability. that is deficit reduction and tax increases and spending cuts that allow the gdp ratio to stabilize by the end of the decade. these three things need to be done now. in terms of the fiscal cliff, if policy is unchanged and we go
over the cliff and there is still no change after that, the gdp in 2013 will 3.5 percentage points. subtract that and that is a severe recession. cbo and others are probably us are animating how severe that will be -- are underestimating how severe that will be because confidence is very weak. it is unclear how the reserve would response to this. we need to scale back from the cliff. at the very minimum, the cliff needs to be scaled back so it is only a hit to gdp at 1.5% -- 1.5 percentage points at most. if you have more of a drive than that, it it becomes it. the economy will weaken. the budget deduction will deteriorate.
we are seeing a fiscal drag in europe. i would argue that we should smooth into this drag even more. make policy changes so next year the gdp is half of this speed limit. that would be consistent with extending an emergency program and some form of tax holiday. in terms of the debt ceiling, that needs to be increased. it would be nice to extend it at the next presidential election. it would be nicer to get rid of it altogether. it is anachronistic law that is a problem. it creates a great deal of uncertainty. as you can see, it can do a lot of damage to the economy. there are a lot of reasons why it is being considered to eliminate that ceiling. it should be carefully considered.
at the very minimum, we should push this to the other side of the election. we do not want to address the debt ceiling on a regular basis. it is damaging confidence. on fiscal sustainability, we need deficit reduction in the next 10 years of about $3 trillion. to get there, a balanced approach would be $1.4 trillion in tax revenue. half of that would come through tax reform and the other half through higher tax rates. $1.2 trillion in cuts to programs -- medicare and medicaid, social security, and other budget items -- that would leave you with approximately $400 billion in interest savings. at all of that together and you get $3 trillion.
the spending cuts were implemented as part of the budget control act. if you add all of it up, if you go down the path i articulated, the spending cuts would be -- the revenue increases would be 2-1. i think it is very consistent in the spirit of simpson-bowles. it would be a good goal to achieve. it is doable from both an economic and a political perspective. finally, you need to nail this down. uncertainty is killing us. it is hurting business investments. it has not infected -- affected laying off decisions yet, but it will. if we do not nail this down, investors will bail and the
economy will struggle. but if you address this problem reasonably, -- we have made a lot of progress since the great recession. if we nail this down, we will be off and running. thank you. >> dr. zandi, thank you. dr. hassett. >> thank you. it is always a pleasure to appear before this committee. under your leadership, this has always been a collegial lace to testify. it is an honor to be here. my testimony is broken up into two parts. in the first part i described the short-term consequences of going off the fiscal cliff. in that section, i concur with dr. zandi that if we were to go
off the fiscal cliff with no policy changes, then the near- term negative economic consequences would be significant. it would throw us into a recession. in the second part of my testimony, i will discuss the trade-offs we face between putting off the tough problems for tomorrow because we are worried about near-term effects. i think the evidence of the long-term effects of government debt to gdp ratio is quite overwhelming. it began with an early analysis who analyze economic growth that high debt levels. it has been confirmed that high levels of government debt shows low economic growth. these literatures can get more sophisticated.
there is a paper that identifies a tipping point in gross debt to gdp ratio. if it gets above 73% and we are above that now, that has a very significant and negative affect on economic growth. to put the result in perspective, there is a simple tabulation that provides intuition for the result. if you run a deficit of 6% in gdp for the next 10 years, that would add to the gdp ratio. that increase would be a not by the end of the decade that would reduce the forecast. these effects are very significant. that growth story might be alarming, but the picture looks words if you think of -- worse if you think of financial calamity.
much of europe this year has been in turmoil because of the greek racist. s. greek crisi look at the struggles and other countries and take consolation in our elected stability. -- relative stability. a recent study examined long- term projections for other countries debt burden. it found that the u.s. has a bigger adjustment than any of the european unions. it gives an urgency for us to act. it is also possible to theorize about how a continuation of these policies could hurt growth farther into the future. a recent paper shows that if we do not act on this, and we are
basically producing a fundamentally different america. it suggests that we are going to move into a world by 2040 were economic growth in the u.s. is not what we normally expect to see each year. there is crowding out of unity by the government. that is how urgent it is. what should we do? there is another large literature that looks at fiscal consolidations. using my own study as an example and along with my two colleagues, our metric of success is that they achieve deficit reduction. we found fiscal consolidations that were very heavily weighted for spending were much more likely to be except the both
then consolidations that were heavily weighted toward tax increases. we speculate that this is because we find this result because the tax heavy fiscal consolidations do not make tough choices on entitlements and because spending is more real when you lift the tax rates. it is easy to discuss reforms that could but u.s. and a positive trajectory. dr. zandi and i agree on the rough outline of what that would look like. the political challenge is a heavy one. if you look forward to the america we are creating, that we all have to agree that the stakes could not be higher. thank you, mr. chairman. >> thank you, dr. hassett. i would like to start with a comment about something we are probably not talking enough about. even as we are wrestling with
trying to debt a handle on the fiscal cliff, we cannot lose sight of their urgent priority of making sure we have job growth -- job creation, to say the least. many of the components you have outlined -- that both of you have -- it comprised of the broad description of the fiscal cliff whether it is the expiring tax cut provisions, the expiring tax cut extensions, and spending cuts as well. if you consider more, which of those would you consider having the biggest bang for the buck in terms of economic impact of those that we are discussing here today? >> it is a given that we will extend the current tax rates
for taxpayers that make less than $250,000 on an annual basis. that is absolutely necessary. when you consider the other things that are happening -- in terms of the bang for the buck, the emergency unemployment insurance program is very effective. it is small in the grand scheme of things. cbo is estimating it would costs per calendar year about $33 million. but the economic to bitty for job growth compared to the unemployment rate would be measurably more than that -- for the economic unemployment -- economic opportunity for job growth compared to the unemployment rate would be
measurably more than that. we are down to go to million people in the program. it is falling each year. i expected to fall even more than that in the next year. there are also limits to how much emergency you can collect. there has been some good work that has come out of the reserve. it is a very significant positive. i think the payroll tax holiday has been very affect his. -- affective. it has very high bang for your buck. it gets spent. it is designed in a way that helps lower -- for household.
you might want to consider scaling that back. you can go to go 1%. remember making work pay? that was a good middle ground. it is probably more affect it in the sense that it is designed to help more middle and low income households. that is a very effective program. >> dr. hassett, any comments on this question? >> thank you for asking that question. i disagree with my distinguished friend on this topic. keynes himself talked about the kind of place where we are right now. if you get onto a cycle of dependence on measures, it could lead to a downward spiral as the national get -- that gets bigger because you try to stimulate
things with shots -- one-time shots. i speculate that you might incur that the best possible thing we can do right now for unemployed americans is fix our big problems. it would help if american businesses had clarity on what the future would look like. the sight of relief rally from such a thing would be worth better than anything you could get. >> i appreciated. i'm out of time, but i will come back to these issues in a moment. >> dr. hassett, an interesting opposition since you cannot ask questions. let me pose a question to you -- if the best thing that can
be done is a long-term fix for our problems -- get out of this cycle that we are in -- would you agree with dr. hassett on that? >> i agree that we do not want to get into a cycle of dependency. we need to phase out the support -- the temporary support we have been running through the economy. in fact, that is what we have been doing. go back to you oh 2009 -- go back to 2009. by 2011, at fiscal polity -- policy was neutral in respect to the economy. this year it will subtract from growth 8/10 of 1%. we have gone from fiscal stimulus to fiscal drag. we need to smooth into the fiscal drag.
the government will be -- debating how much of a hand wind it will be -- head when it will be. we need to smooth into that drag. in the long run, we will be better off for it. >> is that a committee role? -- rule? >> it's not a rule. we will just keep it to a minimum. >> let me ask you for your response to his comment on the cycle of dependency. >> i think it is quite possible that is where we are. >> can i interject here? it feels that way to me. it feels like we are in a cycle of dependency. we are dealing with the 2011 debt limit and the stimulus from 2009.
it is the same thing with different labels. i am having difficulty seeing a way out of this cycle, but i interested in your observations. >> the way that i think about this -- at moody's they have been careful to put in this perspective into their analysis. think about the way of what happens when you change the way you are playing the game. if you decide to spend a lot this year or mail checks to folks this year, that has a multiplier effect. you might get 2% gdp growth this year. but if you take that away, you are starting out with gdp growth 2% lower. the problem is that the keynesian policy really needs to
look at all three acts. so you go up and you go down. the effects are equal and opposite. there is a third phase where you need to pay for it. it is in the negative. in the end, you will have to pay something. you see that in the long run cbo analysis of these policies. we are in the hangover phase. i can say that there is a way out and it is very promising. we need to recognize that we are out of the emergency period. it predicts the problems, we can get out of the hangover. -- if we can fix the problems, we can get out of the hangover. >> the president is proposing the 47% spending cuts and 57% spending increase.
why in the world would be even consider the president posted plan under the scenario that you described? >> the argument against our paper being a guide is that there are many small countries that may be have to be more aggressive about spending because people who lend them the money might head for the exit quicker. if you want to base our consolidation on the things that have been -- succeeded in the past, we would be at a certain percentage of spending. there is great comfort that it would be successful. there is argument that we might be able to handle having bigger revenue share of that. if we copy the successful ones, we should surely almost succeed. if we have a half-and-half approach -- look at our paper when it came out almost two years ago.
we said that the uk consolidation would fail. it had too much revenue. as we are seeing now, millionaires and billionaires are heading for the exit. that is what we are going to see. >> thank you. mr. chairman, i yield back. >> i would like to congratulate the chairman on his election and the fine work he has done as chairman of this committee and to congratulate mr. brady on being selected as his chair of this committee and the next congress. for our distinguished witnesses, they agreed that what we need to do is have a long-term solution. i would like to ask dr. zandi how we achieve that. we are several million dollars apart from the president's proposal. how would you close that gap? outline the president's proposal, speaker boehner rosie
proposal -- speaker boehner's proposal. how can we get people employed and move our economy whoforward? >> i apologize. there will be a fair amount of numbers here. the president's tax revenue proposal amounts to about $1.6 trillion over eight 10 year -- a 10-year period. that is from higher tax rates. roughly 600 billion are from some kind of tax reform. they are all reasonably good proposals. speaker boehner's proposal on revenue -- is roughly $800
billion in tax reform. we are about $800 billion apart on taxes. my view is that we should roughly split the difference. i would suggest $1.4 trillion in tax revenue. $700 billion would come through tax reform. we can discuss what that might look like. $700 billion would come from higher tax rates. the president would scale back one chilean dollars. -- one trillion dollars. we can talk about that. on the spending side, -- does
600,000 -- speaker boehner has come forward with some proposals. i'm not quite clear on how much the spending cuts he has proposed. the president's proposal is short. to get to where we need to go, that $3 trillion target and fiscal stability, we need on $.2 trillion in spending cuts. -- $1.2 tillrillion in spending cuts. that should be part of the process. we should do some things to reform social security. after the end of the day, it needs to be almost double of what he is proposing.
if you sit down and do the arithmetic of spending cuts and look at medicare and medicaid, unless you're proposing a big and structural change in the program, which i do not think is on the table at the moment, it is difficult to get that cut. it is really tough. if you do a run rate of about $600 billion in cuts, that is ok. bottom line -- fiscal sustainability at the end of this 10-year horizon. if we do that, we are off and running here an. >> my time is about to expire. dr. hassett, i would like to hear your analysis on how far apart we are and how we can close that gap. >> thank you. we have a tremendous
opportunity to make sure that we hand off a thriving economy to our kids. i mentioned that it we were to run $600 billion deficit for the next 10 years, by the india -- it would lower our gdp forecasts. if we were to cut with the fiscal consolidations that $600 billion deficit to $300 billion, we would be biting future generations gdp growth in the long run. -- buying future generations gdp growth in the long run. it is ultimately a question of what kind of world we want to live in 10 years from now. if you want to look like the way europe has been growing, we will have a small consolidation,
such as the small consolidation proposed by the president. if you want to have the kind of growth that i hope we can have with a bigger consolidation, that one is being proposed by speaker boehner. >> thank you. >> i would like to focus on something that is probably more of interest to the economists and ordinary people. .et's talk about ratios what i heard you lay out, dr. zandi, was more of an ideal situation. they get you at roughly at the chilean dollars -- $3 trillion. the negotiations over laster's
that ceiling -- last year's debt ceiling --the new number would really be 1-1. that is not actually my question. i want to get to now. we have looked at the president's offer. we'r haven't found any spending reductions at all. we found the $1.6 trillion tax increases. we saw the extension of the unemployment insurance, which is an increase in spending. the delay in the us a question -- and the delay in the spending cuts and no reform in entitlement whatsoever. does the president's current offer give us a to-one ratio?
--do you think the president's current offer gives us the 2-1 test? >> no. he needs to come up with roughly $600 billion more in spending cuts over the next 10 years. i think that there are significant reforms in medicare, medicaid, agricultural subsidies, and other programs in the budget. those are difficult things to implement. it takes a lot of guts to propose those things. i would not discount them. they are important. to answer your question more specifically, we do name or spending cuts to get to my ideal. >> holidaymakers need to reform entitlements. -
--policymakers need to reform entitlements. i do see members of the other party -- most notably, mr. hoyer --he said, not now. they are on the table for a later discussion. i have been disappointed that a lot of the discussion seems to be on the revenue side and not really on the cutting side. really quickly, the debt ceiling. there is something about your testimony that caught my attention, which is your support for the initiative offered by senator rob portman. lawmakers can adopt a version of the so-called dollar rule to address the 2011 debt ceiling. policymakers could agree at the beginning to cover that here --
year's budget. they could -- adopting some form of this rule would be a good safeguard. . appreciate his comments isn't this exactly what we did that now everyone is trying to get out of? we have a dollar of spending reductions. 1.2 is already in place. the other is in the sequester. isn't that what we did? a good idea, why are you and the the others now suggesting it is not a good idea? >> let me say a few things. first, the broad context. we need to get rid of the debt ceiling law. it is agonistic. we need to get rid of it.
cron is agonisti -- and suggestt that some version of the dollar for dollar rule should be incremented. at least considered. it does not need to be one-for- one. it could be 50%. that is not going forward. my view is that we need to nail down how we can get to fiscal sustainability. it at the debt ceiling law. -- get rid of the debt ceiling law. we need some form of budget rule to make sure that some discipline going toward. >> structure.
>> yes, structure. we need to show people that we will stick to this plan. >> thank you. >> thank you very much for being here. i appreciate your testimony. dr. hassett, dr. zandi has indicated that he inks the debt limit crisis we had in august 2011 was bad for the economy and the country and that we should avoid it for the future. do you agree with that? >> first, yes. i think the best testament of this has been done by co-authors who have a very cool index of economic uncertainty. it is a very innovative paper. they estimated that the debt
limit struggle probably subtracted about 1.5% from gdp growth during that summer when it was happening egos of the uncertainty and inactivity that was caused by levels of uncertainty. each time we go through that, there are consequences. i would like to add if that is what it takes to get spending under control, we need to concede that in the long run there will be a benefit, which means we do not have these deficits. in the fullness of time, whether a struggle last summer was worth it, if we have the spending cuts and deficits are lower, it might have higher economic growth in the long run because we went to that struggle last year. >> your position is that we should be ready to go through that struggle again and to call upon the national debt is
necessary in order to enforce spending limits? >> that, of course, is not my position. we should never default on the national debt. the politics of debt reduction, which you on the better than me, are very difficult. i am not a political expert. if there is something we need to do that helps deficit reduction occur, i am not willing to stop process. >> you are saying defaulting of the national debt might be something we need to do now and then? >> no, sir. we do not default last summer. >> we did not. but we might in january of february. is it your position that we should be willing to default on the debt if that is necessary in order to force spending cuts? >> i would not be willing to default on the debt under any circumstances.
look at the history of what has been done. there is a long history of using that debt limit as a moment to distract from the party in power. if we had an academic seminar on the impact of the that struggle and the fiscal policy, he would say that it was a negative thing. >> well, i have never until last year of august 2011, i have not seen any serious effort or serious threat made by the leadership of congress to refuse to give the secretary of treasury the ability to offer to meet obligations congress had adopted. i thought that was a new
experience for us. it certainly was for me to see that happen. dr. zandi, you said you think that we need to repeal this law that tries to set a debt limit and concentrate more on taxing and spending policies that causes to raise the debt, as i understand? >> absolutely. it is a bad way to conduct policy. it is a problem. look at july and august of 2011. it was a mess. gdp downgraded the debt. it really had an impact. cbo is estimating the interest costs is costing us money. it is pretty clear that this is not going to get any better going forward. it will be worse. this is a really bad way of
doing things. we need to get rid of this. having said that, we need budgetr rules. we need to find a way to be credible. the debt ceiling approach is the wrong way of doing it. >> thank you, mr. chairman. >> thank you, senator. >> i want to pursue that question a little bit. this is on my mind also. my experience is the political system find it awfully difficult to say no to constituents. with reelection in mind or a natural human tendency to want to please people rather than disappoint them. i had the privilege of meeting with christine lagarde from the imf. i asked about the reforms that were taking place in europe.
i asked, would any of these reforms be taking place without europe being in a fiscal crisis mode? her answer was, absolutely not. unless the revolver is at the temple of the politicians with the finger on the trigger, they're not a bubble of summoning the collective will -- of summoning the collective will to tell the people that represent that they need to take steps to resolve a problem and will cause disappointment and pain to do so. my experience in the years i have had in politics was exactly that. we never would have gotten what we did in 2011 without the threat of defaulting on our
debt. to think that we could put a structure in place today that perhaps we would all be comfortable with in terms of solving our long-term problems and be assured that 10 years or not that congress would not have modified that dozens of times to the response of into joints who are banging on the door and saying this is to develop much pain, we could hardly sustain a policy for months around here, let alone 10 years. if you want to fix the long-term situation, i think there is can censure -- consensus that we cannot get from here to here to provide that kind of growth and what we want to hand off to future generations. we have to factor in a big
factor of the political system here in the way politicians think and react. we need leverages in order to address that. i'm not really asking for a response. you have already answered to that. you have stated your position. i just wanted to add my two cents worth in terms of why i think it is important we have the leverage points. maybe there are other ways of doing this, but my experience is that the next congress or the current congress can undo that in a big hurry as the constituents line up outside their doors. thank you, mr. chairman. >> can i -- in response? >> yes. >> in the case of putting the revolver against the head -- in
the case of europe, we do not want to do this on a regular basis. that'll be a problem for our economy. people will not be engaged unless they have clarity in this thing. i have more faith in this institution. after the end of the day, you do the right thing. if you look at the history of this body, it roughly comes up with the right answer. we have not dealt with the debt ceiling since the beginning of this country. i think we are very capable and we can do it. >> i will respond by saying that we have been trying to deal with our cascading debt and deficit for decades. i would say that we have been far short of doing the right wing -- right thing to look for a healthy fiscal future. >> thank you, senator.
>> i agree that we usually do the right thing but only after we try everything else. the time has come. i see this as a scary time. we need to protect our fragile economy, but it is also an opportunity to move forward. i first question is based on your predictions -- what do you think the timeframe is for possible further downgrades from the crater agencies -- credit reating agencies? >> this is my interpretation.
i do not know for sure, but this is a guess from my experience. i think people outside of the beltway have a lot more faith in you than you do. there will not be a negative reaction. by the way, i would counsel -- i -- you will get a better deal. >> in other words, a deal that does not mean much would not help us? >> in order to avoid a downgrade in the u.s. treasury debt, we need something lows to fiscal sustainability. we need to get to $3 trillion. if we fall short of that, that is a problem. >> ok.
you brought up social security. don't we need more reforms to make that more solvent? if we were to embark on that and set up a commission, i think there is a lot of talk of ok, we should do that. >> i think that is a perfectly reasonable away -- way to do it. >> my colleagues said that in the near term he would rather see rates go up on the wealthiest americans because he believes it gives us a greater long-term chance to reform the tax code. do you agree with this assessment? also, do you think this is a weiss -- wise course?
i support going back to the clinton levels. do you agree question mark >> i think we need to do both. if you are going down my path, we need both. there is no right to get to that number with tax reform alone. if you consider we will not take away a charitable deduction and if your goal is not to raise taxes from lower and middle- income houses. there is no way to do the arithmetic. there is no good way of doing it to raise that kind of revenue. we need to do both. we need tax reform and we need higher tax rates on upper-income households. >> it seems to me you could do the tax rates at the end of the year because then you could make
the kind of deal that you want. to some of the closing of the loopholes. you could bring the corporate tax rate down and work on the debt by closing the loopholes and subsidies. tax reform as complicated. nail down a framework and then go to work and try to figure this out. in terms of corporate tax reform, that is absolutely necessary. the goal would be to make that revenue neutral. you want to bring down those corporate rates. >> what did you think of senator cockburn is assessment? -- cockburburn's assessment? >> i have a great deal of respect for the senator, but this, i disagree.
it would accomplished very little in terms of economic efficiency. with unemployment still high and -- we need to seek ways to make ourselves a friendly place. i am very concerned that i have seen the president continues to say that 97% of small businesses would not be affected. it is a very misleading statistic. anyone who has any profit from a sale on ebay would have -- we would be calling them a small business. more than half the incumbents in that bracket. it is a bad time to dig -- more of the half -- more than half of the income is in that bracket. i strongly disagree. >> they're willing to make some sacrifices as long as we really
are on the right path. they see that as their zero long-term liability. thank you to both of you. -- they see that as their own long-term liability. thank you to both of you. >> thank you to my colleagues from pennsylvania. theuld like dr. hasesett, president's proposal had some specifics. i think it is clear there is a headline tax increase that he wants of $1.60 trillion. what the administration would describe is $600 billion in spending reduction. it looks like 200 billion of what they put under the 600 billion is revenue. fees and various other forms of
revenue. that is not spending restraint at all. there is a deferral of the sequestration. i am not clear how long that referral is meant to be. for one year, that is $100 billion. then there is additional spending else -- stimulus spending and other things that add up to about $100 billion. that is $400 billion in the way. you should legitimately deduct from the headlines 600 billion if he wanted to write what might be legitimate spending restraint. if you go back, $1.60 trillion of new revenue, maybe we have $200 billion in spending restraint, it is it fair to say that this is a 8 to 1 ratio? >> that is about right. >> eight times the spending
restraint. >> that is right. there is some recidivism here in the sense that spending reductions have systematically been overstated in recent years by the president. it appears to me that there is a lot of tax increase and almost no spending reductions. >> spending programs that you launch, that money gets spent. promises of future savings? much less so. when the president talks about new spending less -- stimulus spending, i am not sure the savings would materialize at all. in reality, the president's proposal is almost entirely of new taxes and virtually nothing that is specific of the spending restraint. your research suggests that the most successful point of
consolidation are those in which the ratio is almost the reciprocal of that. >> i can say with absolute certainty that a consolidation that has the shape of the president's proposal would fail. in the economy that we have now , in that kind of a world, it is impossible to envision generating the kind of healthy economic growth that the government is willing to have the spending cuts we promise to do two years from now. we will be saying, we cannot afford to cut government spending because it will throw us into recession. >> that brings me to the next issue i would like to discuss. to get to the president's tax increase package that he is looking for, he is calling for higher marginal tax rates. in addition, a reduction in the
value of deductions and other expenditures. higher taxes on capital gains, dividends. the way i count this up, if you include the limitations, the top marginal tax rates for some would be between 41 and 45%. that is just the federal level. we have states with varying income tax rates. some americans would be paying more than half of their income. it would exceed 50%. if the president got all the tax increases that he wants, ais likely that could precipitate a recession? >> id is not only likely, it would certainly do so. it is cataclysmic. if we go from a 15% dividend tax, to 45%, that is
ridiculously bad news for an equity markets. it is something we saw on the other side. call for responded to the dividend tax reductions and there were a lot of positive movement. as a package, there is a question of how negotiations work and maybe you want to start negotiations with an extreme position, i cannot imagine anybody looking at proposal and not arguing that it would not throw us into recession. >> and rather than taking an extreme that is very harmful, you look for areas where the other side to meet halfway. for instance, because of the political imperative that has been created, if revenue has to be part of this, shouldn't at
least be generated in the way it does the least economic harm? in your view, would you do less economic damage by generating revenue through reducing the value of expenditures than raising marginal rates? >> if you phase it in far in advance, for example, changing social security benefits when i retire now, he would have a positive growth the fed right now from the spending cuts because she would give clarity to all the people worried about the future of america. >> my time has expired. >> good morning. health care inflation is a significant driver of medicare escalating before us, what do you think should be done to control that inflation?
i heard what you said about medicare. that is -- no matter what you do, you still have disinflation going on. it is a major. -- you still have this inflation going on. it is a major. >> let me say a few things. health care inflation in the last couple of years and has slowed quite sharply. it has been about 3.5%. it is very positive developments. some of that probably is due to the weak economy, which means less demand for services. some of its likely is do to the affordable care act. there is growing evidence of that. we do not know for sure. there are some positive
experience in the affordable care at the debris benefits -- that could lead benefits. the insurance exchanges, the independent payment advisory board. we will have to see how that works out. most encouraged about the cadillac tax. this is a tax on gold-plated health insurance policies for folks like me. i get a very good health care package. if i get sick, i am unfettered in terms of my health-care consumption. it will make it more costly and i will start shopping for health care. that will create more transparency and get the growth in health-care costs down. we do not know what is gone to
work, but there are some interesting -- what is going to work, but there are some interesting new programs that have potential. we should see how those worked out before we engage in some very significant structural changes. like a voucher program. we may have to go down that path, but it is much too premature to do that. we should see how these developments work. up, if temporarily going over the cliff is necessary to achieving a good agreement, lawmakers should not hesitate to do so >" how long do think we could stay over the cliff without doing significant damage to the economy? >> i think you could go into early february. by early february, it looks like you are not coming to a deal and
investors began to discount the likelihood you're not coming to a deal, you will see stock prices decline, the bond market reacted. by mid-february, it would be doing a lot of damage. by the end of february, the debt ceiling, of really bad things will happen. you have about a month. a lot does depend on whether the treasury is permitted to freeze withholding schedules. i'm going under the assumption that they can and will do that. >> a bad deal -- no deal is better than a bad deal. going back to, i am curious about, given your findings, do you believe the tax cuts for the first $250,000 in income
should be extended immediately? is there any reason that it should be tied to tax cuts for the wealthiest in our nation? >> i think there should be done as a package. i think it will create brinkmanship. the nailing down the tax code, md. down the spending cuts, and yelling down -- nailing down the spending cuts, nailing down long-term sustainability, you have to do this all once. that is the only deal that works. >> you think that to me done by the end of the year? >> no, i am skeptical. i think it can be done before the significant damage.
i am planning a political observer, but my guess is that we will have to go into next year. >> vice chairman brady. >> chairman, i apologize for being late. thank you for your leadership. you have been a terrific leader, a tremendous to work with. i appreciate your approach and how you handle yourself. thank you very much. i think there is a bit of consensus in the sense that it is irresponsible to voluntarily go off the cliff, but equally irresponsible to come to a solution that does not address the key issues facing us. spending discipline, of fixing a broken tax code, and dealing with our biggest challenges. economic growth works.
average recovery in this recession might have cut the deficit to $430 billion. returning to the pre-2008 levels. what is missing today, we know consumer spending is above what it was before the recession. government spending is above what it was before the recession. that areainvestment, a is what continues to lag. in your view, do you think raising taxes on the two marginal rates as well as capital gains dividends, does that encourage more business investment in the economy? >> the threat of those increases is a very big negative. mr. brady, one of the things economists use when they teach graduate classes is something
called the handbook of public economics. you had to study that, too, mark. i know i did. one of the later editions, there is a chapter on how tax is the fact business spending. the going to very gory detail about how-this can be -- we go into a very gory detail about this can be. if the dividend tax is going to go up, a lot of firms would be hurt significantly by that. they would be paring back their capital spending in anticipation of higher taxes in the future. businesses will look to the future when they decide what they're going to do. they are not investing.
you see it's in the investment data. it is why this recovery has been so slow. businesses have a lot of cash and are not making a lot of investment. >> your point is this does not help the economy. >> you could go back to the writings, he was a scholar who identified very early on that business cycles, recessions, and recoveries tend to be driven by investment because consumers are pretty steady, but investments can be fluctuating. his view of the problem of stabilization policy was to try to stabilize investment and not to focus on consumption. one reason we have had such a disappointing recovery is that we have not address the fundamental reason why investment is so weak. we are a really unattractive place for investors to invest
right now. >> why don't you just accept a higher tax rates? it would be politically very convenient. it does not solve the economy. it does not solve the deficit. it is not a serious deficit proposal. the credit rating agencies are looking for a plan that lowers the gdp to debt ratio. i do not think there is a magic number. social security, medicare, to find a sustainable path for word on them. do you think the president's plan adequately addresses the sustainability of medicare and social security? >> >> i think he needs to go
further. i do not think it is enough. i believe the proposals are good ones. i think they are hard proposals to make because they're substantive. to achieve fiscal sustainability in the context of $3 trillion in 10-year deficit reduction, i think we need to do more. >> looking at the republican plan and the present proposal, do you see any common ground? -- and the president's proposal, do you see any common ground? >> the common ground is that we're looking at the same proposals. cbo has scored a number of different approaches. i also think there is no general agreement in the context of the current discussion, we will not make any major structural changes to these programs. we will not block grant medicare -- medicaid, and we will not voucher or premium support
medicare. in this context, it becomes dollars and since. -- cents/ . this is not going to be easy. i would suggest that in this quest for more reform to medicare and medicaid, if we can say by the 10th year of the budget horizon that we are on the right path, i think that is ok. entitlement reform -- >> the number is whether we have solved the problem. >> entitlement reform is tough and you cannot do it in 10 years. this is a long-term problem. we should be thinking about this in a 20 or 30-year horizon. cbo scoring makes it incredibly
difficult. we don't want it to force us to make -- >> i would like to take a step back and step in a slightly different direction from the fiscal cliff and talk more about long-term and medium-term economic realities we face. in your written testimony to this committee, you warned against kicking the can down the road in definitely because of the adverse effect that might have on the economy. the medium and long-term impact it might have. i thought your analysis was definitely something we need to pay attention to. as you observed in the failure to make progress in this area now could signal that we have
bigger troubles ahead. thatoody's analytics model you used breaks down about 2028. the reason it does that because at that point, the interest on our national debt will start to cripple our economy. we will be left without much recourse. i'm not sure there is a tax increase on the planet that could suddenly fix that. i'm not sure we could print money fast enough. if we did, we would go the way of argentina. i tend to think of this medium and long term risk as the fiscal avalanche. the cliff is something we are approaching now and we can see where is this. we know will hit the cliff.
the avalanche is different. the only thing you know about avalanches, you know when the conditions are present. you know when the snowpack has built up to the point where it could happen. you do not know when it is going to happen, you just know it is coming. once it hits you, the avalanche becomes completely impossible to control. do you agree with this characterization about the avalanche? could you elaborate about that kind of threat? >> would you mind if i steal that from you? i will give u.s. -- i will give you credit. i think it is right. i do think -- that is why what you're doing now is so important. this is a once in a generation opportunity for you to nail these things down.
we're not that far apart. i really do not think we are. if you are able to put us on a credible path to fiscal sustainability, do it in a balanced way, i think we are golden. i think we will avoid that avalanche. if we do not do that, a ultimately, it means we will never do it until we're forced by that avalanche. >> house in will be need to do that in order to avoid the conditions -- house soon will we need to do that in order to avoid the conditions? >> i do not know the answer to that. my model breaks down. it will happen long before that. >> it could happen within the next four or five or six years. >> here is the thing. the problem is, if we do not
address this, we will be stuck in this slow growth netherworld of going forward. we will get nailed by something. i do not know what it is, but something bad is going to happen. that is going to be the thing that sets off an avalanche. >> a credit downgrade? >> something we are not even contemplating. we do not know what that will be, but it will happen. we will set ourselves up for that avalanche. that is why it is so important to get this right. >> what about a credit downgrade? if that were to happen, doesn't that call into question all kinds of things? money market funds and other types of investment funds our chartered to invest only in a
certain grade of funds. if all the sudden u.s. treasuries were downgraded, wouldn't that have a pretty significant the fact on where we are relative to the avalanche? >> if there is downgraded treasury debt, this would likely trigger other downgrades. bank debt, they will get downgraded. jpmorgans of the world. money managers have in their relationship with their clients agreements not to invest in bonds that have rates below a certain grade. they will have to divest themselves because of the downgrades. this will cause problems in the credit markets. the credit markets will ultimately adjust.
the reality has not changed. you will see hedge funds and private equity firms, but that is the process. it will take time. between now and then, it will create a greater amount of turmoil. it is what this means. it means that we do not have the political will to nail this thing down. and we will not. people will recognize that and we will go nowhere. >> if you want to preserve the entitlement, get us to balance. >> get us to sustainability. >> thank you, mr. chairman. >> i have one more question. i know we could be here a while if we had the time. i am grateful for the patience of witnesses. i was looking at the testimony and on page 8, he walks through
the question of this balance of how you do the balance between cuts and revenue. in the second full paragraph, he says, using a range of different methodologies, the average unsuccessful fiscal consolidation relied upon a 53% tax increase, 47% spending cut spurred a successful consolidation consists of 85% spending cuts. i want to get your sense of that. whether you agree with that 85- 15. if not, why not? what would your approach be? >> i respect kevin's work a lot. i think that number varies considerably depending on the country and it depends on where
the economy is in the business cycle. it also depends what the reserve is with respect to monetary policy. it is one thing if interest rates are 4 or 5%. it is another thing if we are at 0. there has been a lot of really good work revolving around these issues and trying to get good benchmarks for fiscal consolidation. a really great paper came out of the imf the last couple of days on this issue. it makes a very strong case that there was a fiscal speed limit. you cannot have too much fiscal consolidation to quickly. it becomes counterproductive. this balance between tax and spending in the context of the u.s., particularly when the economy is weak, the spending multipliers, when you cut spending, they are very large,
much larger them was previously thought. i did not buy into kevins 85-15. in the context of where we are today, that is not right. having said that, i would do something like that proposed. two-one kind of ratio. if you do that, that is balanced and it did system reasonably good place. it gets us to fiscal stability and avoiding the avalanche. it is still more spending than tax, but it is more balanced. the last thing i would say, we're talking about taxes and spending, this is an important point. tax reform is spending cuts. there is no difference. if i give you a mortgage interest deduction or a cut he would check. no difference.
-- or cut you a check. no difference. from an economic perspective, they are one in the same thing. that is a spending cut. >> i do not have anymore questions. >> looking at our global competitors who find themselves in financial crisis showed more than 20 times in nine different countries countries cut what they owed in their spending and through the economy at the same time. they did that because there cuts for a large, credible, politically difficult to reverse. there were real and they were believable. it created the confidence to grow an economy. it was proven over and over again. that is the model for this fiscal cliff discussion, making
both the cuts and the reforms that are real and credible and politically difficult to reverse. that is the only signal we can send. it is the right signal to send to investors that we're serious about getting our financial house in order. german, thank you. this is your last committee meeting -- chairman, thank you. this is your last committee meeting and you will be missed. >>: back to the analogy of the avalanche, a -- going back to the analogy of the avalanche, when we had the subprime crisis, and there was no warning. likewise, we did have the same type of avalanche come tomorrow. there is no more confidence, nobody buys are debt.
we would have increased interest rates and huge economic problem. we have two things in front of the spread not only the fiscal slope, but also the debt ceiling. treasury estimates at the end -- we have until the end of february. in solving it, would be better to put the debt ceiling in the package with the fiscal slope for a comprehensive solution? or would it be better to do them separately? >> they should be done together. this will not work if we break this thing apart. we need to scale back the cliff. we need to raise or eliminate the debt ceiling. we need to achieve fiscal sustainability. this to be a package. -- this needs to be a package. >> i agree. >> i want to thank both of you for your testimony.
>> thank you very much. i appreciate your good work and your leadership. thank you for your testimony. i think we made in 90-minute meeting. that is pretty close. that is pretty good. i want to thank both of our witnesses again for their testimony. by the way, without objection, the full text of your opening statements will be in the record of this hearing. we're grateful because it is clear to most americans we do have a substantial challenge with regard to the cleiff. we know if we do not take the right steps, it could jeopardize our economic recovery. we cannot afford to lose ground on the gains we have made. i am confident we can get this
done. the congress of the united states can successfully reached the compromise we need to assign a path to fiscal stability. this is my last hearing. vice chairman brady mentioned it. i have enjoyed this work as chairman and as a member of the committee the last six years. i am looking forward to more work on this committee as well. our work on job creation, deficit reduction, manufacturing issues and other issues has been informed by the perspective of many of our nation's top economists. two of them are with us today. and from other leaders in the business community and the non- profit sector. we're grateful for those insights as we seek to get answers. we also have a great working relationship with vice chairman brady. i am grateful for his work and the work of both parties on this committee. i would also like to recognize
three retiring members. senator bingaman has served on the committee continuously from 1987 forward, 25 years of service. congressman and she from new york served from 1996-1998 and from 2005 until the present. they will lobby retiring from congress at the end of the year. i would -- they will all be retiring from congress at the end of the year. the record for -- will remain open for five business days for any member of the committee who wishes to submit a statement or additional questions. if there is nothing further, we are adjourned. thank you. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2012]
>> the joint economic committee held its hearings on the fiscal cliff, house minority leader nancy pelosi spoke to reporters about the issue. she called the republican proposal "an assault on middle- class and seniors." >> good morning. here we are. thursday in december, the talk around here is what is going not
at the negotiating table. is anything going on at the negotiating table? what is important, i think, is what is happening at kitchen tables across america. the relationship to decisions that are made here to what those discussions are. i think it is important to take a moment to see the context with which these negotiations are taking place. the middle class -- and we saw the republican plan, the proposal was an assault on a middle-class, seniors and on our future. when you look at kitchen tables across the country and how people are concerned about how they pay their bills, it is important to know that all of those decisions the mermaid to
the economic security -- the decisions that are made have an impact on middle class families and on the prospects of the future for the young people and their families. when we listen to young people across the country, they understand their future depends on their having education and training. they also know the relationship between the security of the seniors in their family and the prospects of their future. if there is not that economic security and their parents have to be looking after their grandparents, that limits the possibilities. they recognize that. they have told us that. when it comes to seniors, and we talk about how we're going to affect medicare and social security, that takes place in the context of what has happened, insecurity about staying in their homes, the review of pensions.
issues that relate to the age of medicare. it is not just about what we do here. it is about what is happening in the economy and how vulnerable they are at this time. people are viewing what we have here as almost irrelevant unless it really addresses their concerns. these are the concerns of the middle class. one family at a time can strengthen or weaken those families. it is really important that we recognize the role that each piece of this -- what are the revenues? what are the investments? what cuts should be made? how did they contribute to growth and the creation of jobs as we reduce the deficit?
i think that it is hard to explain to anyone why it is even a mystery that we should not be having upper 2% of population and paying its fair share. how do you start by saying, we want to know what you're going to do to seniors before we do what we know we have to do? that is the connection that those of us in the house of representatives -- we bring back to the table those concerns and that kind of an atmosphere. plenty of other uncertainty in their lives relating to home ownership, pensions, long-term health care, all the rest of it. it seems to me that the first
thing we can do is to take up the middle-income tax cuts. money that will be spent injecting demand into the economy, creating jobs. at the same time, it frees us from the hostage-taking of the republicans saying we will not give the middle class in come cut unless you give it to the wealthiest people in our country. our economy has thrived under the clinton rates. whenever there rates should be now should look like that. -- whatever the rates should be now should look sort of like that. it is about job creation, it is about growth. it is about deficit reduction and the relationship. if you want to reduce the deficit, create jobs. i cannot even explain to my constituents why congress is not
in session now trying to build bridges of understanding and representing members. your job description and your job title is rep. representatives. those concerned should be central to our discussion. it really is something that has to be seen in a more comprehensive way. not is one thing about raising the age of medicare. first of all, show me the money. i did not need to know why that is something that people think well [inaudible] what we do is people between 65 and 67? show me the money. it is not even the right thing
to do, first and foremost. it's it's a trophy that the republicans want? is that the trophy that they want? in order to do what is right to raise the rates for the wealthiest people in our country? >> tim geithner said yesterday that heat the white house would be willing to go off the fiscal cliff if there is no movement by house republicans. would you be willing to go off the fiscal cliff if they did not budge on the top 2%? >> i did not understand the statement in the way that you characterized it. the way i think -- it was a prediction. if there is no agreement, then the fiscal cliff pass to be dealt with. i did not see it as if they do not do this, we do that. i saw it as a statement of fact.
if there is no agreement, we go over the cliff. >> the governor christie is meeting at the white house with the president. this afternoon, as he has a meeting with the speaker. [inaudible] >> christie? i thought you were talking about sandy right now. >> [inaudible] >> i do not know that. i had a meeting with governor cuomo and i met with mayor bloomberg. they showed me the documentation of the challenges they're facing in their communities. they know that i am committed to the social compact the but we have to be there for people in
times of natural disaster. one of the first things i -- that happen to me was the earthquake. if you ever want to feel helpless, but to people who have just been a victim of a natural disaster and help them feel positive about what the prospects are. i will be happy to work with the matter. -- whomever. it is in the public domain, but in terms of their communities and the impact on their communities. we'll be working with their colleagues in a bipartisan way to address those needs. it will be part of the package
that will include not going over the fiscal cliff. i did talk to the president about these matters. >> [inaudible] can you give us a concrete sense of for this negotiation stand right now? what is really going on? >> maybe they are not talking enough. there is no reason why we could not come to the table and get this done right now. everybody knows what the elements are. if we're going to do it, let's do it now. if we're not going to do it, we will not touch one hair on the head of the wealthiest people in our country, then let us know that right now, too.
we can take the consequences of that and mitigate for that. >> $800 billion -- >> i see their proposal on an assault on the middle class and on our seniors and on the future. should we come -- have a stake that out -- they staked that out? it was not in furtherance of finding common ground. >> [inaudible] i wonder what your thoughts are. but the meeting might be for the republicans and for the future of the tea party movement. >> that is quite a question. we all does found out this morning of the news that senator demint would be leaving. i have to see -- it is the other
side of the building and you know how far away that can be. >> what does he represent? >> i will tell you this. competition for the honor of most shameful, all the rest of it. the saddest imagine -- the recognition of the needs of people with disabilities. it was something that grew from people we did. i was there the day the president signs the bill. senator dole was so proud of it
all. he and his staff, it was a beautiful bill signing because it related to people's lives so directly. for senator dole to come as a former leader of the republican party and come to the senate floor to advocate for that legislation five more votes, and to see the republicans in the senate reject that out of hand, it was stunning. you asked me -- i guess it depends on who is replacing that person. that action that was taken in the senate the other day was
such a slap in the face to veterans. senator dole was a veteran. ran for president of the united states, presided over the senate as majority leader. that was one of the saddest days. anyone who was a party to that, i wish them well wherever they're going. i hope we can have more of our values represented there. >> during the debate, you have talked a lot about tax rates and entitlements. you have not talked to much about the payroll tax cuts. you've not talked about it much.
what should happen over the next couple of weeks or beyond that with a payroll tax cuts? >> taking payroll tax cuts out of the context of what is happening, it is not something i intend to do. i will say this, as important as the payroll tax cut has been in the past two years, putting more money in the pockets of people so they will spend it, create jobs, be a stimulus, it should be no substitute for passing a middle-income tax cut. and to do even more for middle- income families and our country. i do not where it -- -- in our country. it would be something that would be a backstop, but it is no substitute for real middle-
income tax cuts. it depends on what we do. it depends on what we do now. as far as the unemployment insurance is concerned, that is something bad is a safety net for a whole economy -- that is something that is a safety net for our whole economy. a free-market economy is one that goes back and forth in terms of ups and downs. when it is down, people have paid into an unemployment insurance program and they have those benefits. it is one of the most important stimuli for the economy. dollar for dollar, there is more demand injected into the economy by unemployment insurance than almost anything you can name. food stamps being another one of those. in relationship to our economy
overall, i do not think -- i think there are two in different -- to entirely different things. i do not want a payroll tax cut to be a substitute for something stronger that we can do. >> [inaudible] you also said they should look sort of like those. >> i am in favor of the 39.6. >> something lower than that? it would still be a break. >> i do not want anything that would put more of a burden on middle class. it is about the money. how much money do we need? what is our goal? let's have a timetable. let's get this done. whatever the give-and-take,
however we advancing down the field -- how are we advancing down the field? that is the beauty of the 39.6. the clinton tax rates. it produces the revenue we need to have a fair and balanced solution. that also helps reduce the deficit. b, it stops the hostage-taking of the middle-income tax cut unless we hold harmless the rich. it says no, 39.6. then you can go to the next step, the 28% limitations on deductions. 28%. if you make a million dollars a year and you give money to charity, it is limited to 20%.
not 39.6. the differential between 28 and 39.6 is were a lot of money a is. it also helps reduce the deficit and brings us to a place. would i like about the 39.6 and the 28 is they produce revenue, the differential on top of that produces more, up $1.60 trillion in revenue. that is equivalent to what we have in costs. -- cut. >> [inaudible] could you agree to lower that rate? table andet to the
talk comprehensively about that. it is about the money. i told to before -- i told you before, it is not the price, it is the money. how much money do we get out of this? if we go lower, how does that impact the middle class? if we have a certain dollar amount we must achieve, where is that -- where does that come from? if it comes from the middle- class, and then no. i like the present proposal because it has fairness, -- i like the president's proposal because it has fairness and it holds the middle class harmless. >> apple computer had an announcement today will start making the imac here
domestically. we had a u.s. manufacturing agenda and tax incentives. are you going to be trying to promote that? what sorts of things we'll be putting at the top of your priority list -- what sort of things will you be putting at the top of your priority list? >> mr. hoyer has been a leader make it in america ric agenda. that is a very positive. it took the legislative form of the competes act, which we passed years ago and reauthorize
td. we had to persuade our republican colleagues that it was a good idea. it was very bipartisan, as it turns out. innovation a think -- i would imagine from our standpoint, from our standpoint, talking about what we would do the first day -- a jobs bill that would reflect what i just said, those abc's. also, in keeping with the attitude that you cannot separate the ballot box and the breadbox -- we would have to have campaign finance reform. the first bill we would push for is going to be the one we have been talking about.
to disclose -- i do stand mitch mcconnell came over to the republicans and told them not to support the disclose act. everybody has to say except the people have to hide behind what they call public interest. disclose -- amend the constitution, reform campaign finance -- take it all the way down and in force. in force the law. -- enforce the lot. one of them is one we would like to introduce -- they have been part of putting this approach together. it is that we will have a federal law -- this is something we can do in terms of elections. people should have the
opportunity to vote -- it would encourage early voting and vote by mail so that the voting would not be suppressed by limiting the number of machines and number of hours and days. we think that would have an impact on policy. and more people who can vote. --t comes back to the abc's american made, buil the infrastructured, cut taxes on the middle-class come and at the dd the d -- the dare. >> there is no house because the republicans have left town -- what is your response? >> i did reference it. i thank you for bringing it up again. why do we not hear the existential question?
why are we not hear? why are we not hear trying to build confidence, find common ground, even as members interact with each other, not just the principles, as they refer to leaders or the principals on committees. why are we not getting information? was it voltaire who said define your terms -- what are we talking about? what we talking about when we say restructure entitlement? what does that mean -- destroying? the voucherize? or does it mean that work together to make the stronger and improve benefits for beneficiaries? why are we not hear at least finding common ground on what these terms mean? why are we not here talking about what our goal is? why are we stretching this out
so that in this time of consumer confidence, which is important to economic growth, market confidence at the end of the year -- it would shorten the length of time where all that was in question. they most certainly should be here. it came as quite a surprise. i am very surprised that the republicans would leave -- they came in tuesday and left wednesday at noon. with all that needs to be done? avoiding the conversation? it sounds like people do not want to be in town for some reason. the reason is because they are -- we are asking them to sign the discharge petition to -- to urge their leadership to pass middle-income tax cuts. setting the table for what could come next once we understand that we are holding the middle-
class harmless as we go through this. thank you all very much. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2012] >> the house went into recess yesterday. they will reconvene at 2:00 p.m. next tuesday. among the items on the agenda, appointing members to a conference committee to hash out a agreement on the defense programs bill for next year. the house is also set to take up a non-controversial bills next year. they had planned to adjourn for the holidays, but majority leader says the house fully back in session on december 17 to disco -- deal with the fiscal cliff. the house will not adjourn until an agreement is reached on preventing spending cuts and tax increases scheduled to take effect on january. on washington journal" we have been looking elements of the so-
called fiscal cliff -- a discussion of the expiring tax provisions set to hit january 1. host: we have been focusing on different parts of the fiscal cliff discussion. today we're looking at tax extenders for businesses and individuals. joining us is sam goldfarb, a tax writer for cq roll call. what our tax extenders? guest: they are temporary tax breaks. some people are concerned the entire tax code is turning into a big tax extender. they are considered to be a small provision and targeted at specific types of businesses. host: why are they temporary? guest: a lot of people say they should be made permanent or
they should be eliminated altogether. it is easier to pass when they are temporary. they keep on being extended and extended. host: we will look at some of these. these are some of the tax extenders and the cost of continuing the tax breaks through 2013. host: some of those are really specific. guest: that is the idea.
they have become a case study in what some people think is wrong with the tax code. if there are loopholes that can be claimed to love god and their -- have gotten there because of a lobbyist lobbied hard to get there, it is these tax breaks that come under scrutiny. host: why is the r&d tax credit not permanent? it is passed every year. guest: every year or every two.
it actually expired this year and now they are talking about extending it retroactively for this year and for next year. how much sense does it make to? extend it retroactively? the businesses have already done their research and developing spending and you're giving them a check for what they already did. it doesn't make a lot of sense. there are some of various not so great reasons. host: what are some of those reasons? guest: it makes it seems like a cost less. something like $14 billion. it would be multiple times more if they were planning to extend it for 10 years. i would write, "the $1 trillion
tax bill." they are lobbying every year. you can look it up. it is very transparent. host: the tax extenders we just looked at -- with the amt, would that be a tax extender but in a category by itself? guest: i suppose so. the amt user goes in the tax extender bill and a bill was passed this year, the finance
committee passed it, not the senate. it included the amt patch. host: if the tax extenders have to be dealt with by the end of the year, what are the options for congress right now on december 6 today? guest: these are kind of an afterthought at this point. often all these are extended for a year or two at a time. they talk about making the list shorter. if they need to pass something, all have to pass everything for a year and it will not cost so much. they will get to this after they figure out the bigger question. host: they can do this in one bill?
guest: it will go any big fiscal compromise. tax extenders or in the financial belau. -- were in the financial bailout. they usually get snuck to the big bills. the senate finance committee passed a bill in august. the house has not formally acted. they send signals that they are ready to pass something similar to what the finance committee passed. be they are more aggressive with the house republicans. host: what about the white house? guest: i think the white house
has proposed extending them, basically a whole batch of them. when we do tax reform, we need to get rid of some of these. host: sam goldfarb is a tax writer with cq roll call. we have been talking about tax extenders. now we want to open up the phones. if you have questions about the so-called fiscal cliff numbers are on the screen. 202-585-3881 for republicans. 202-585-3880 for democrats. you can also contact us through social media. email@example.com and
twitter.com/cspanwj. we have a tweet for you from jean in ohio. guest: i think dozens of them are for businesses. i do not know if i want to describe them as corporate welfare. there is the research and development tax credits. motorsports complexes known as the nascar tax break. four railroads and the list goes on. a lot of them are for businesses. host: we have a tweet from independent's day.
guest: i'm not exactly sure who is responsible for that provision originally. it is not very expensive. it actually does not impact the budget that much. some people say things add up. people always have good explanations for these tax breaks. the nascar one allows businesses to deduct the cost of their property faster than they would otherwise, over five years instead of seven years. then my point to some other business that gets five years and says, we should also be five years.
a lot of provisions are about fairness. host: do they say our property without faster? guest: the current law is not correct. the provision they get to deduct their property over 15 years instead of 39 years. they say the added nine years is unrealistic. host: how long have you been writing about taxes? guest: maybe five years. host: how much do you think you know about the u.s. tax code? guest: not so much. i talk to people with law degrees and they probably know a lot about one part of the tax code.
there are a few people i know with encyclopedic knowledge about the whole thing. those are very few and far between. i know more than many. host: if somebody said to write a book about the u.s. tax code. guest: i'm here to bridge the gap between the tax people and the general public. host: you say you know only not so much about it, why is it? guest: the tax code is thousands of pages long. i think i know enough to say it is long for a reason. the world is very complex and
therefore the tax code has to be complex. host: you are a graduate of northwestern university and the university of chicago. all the discussions we have beenhaving are available online and that is c-span.org/fiscalcliff. you can find all of the different tax and spend segment we have been doing on the "washington journal." you can see the press conferences on capitol hill. c-span.org/fiscalcliff. harrison on our democrat line. please go ahead. caller: thank you for taking my
call. i think the government is so corrupt. there is some much fraud going on, like the medicare program. the doctors and the insurance company -- they need some cleanup people to check the fraud that is going on. i watched "american greed" on tv. the skin doctor was cutting elderly people on medicare. so many doctors when that first was passed when lyndon johnson passed that into law. it was mismanaged.
doctors did not want it at first. i and 85 years old and i have paid taxes since i have been 15. i paid into the -- host: social security, medicare. caller: all through my life. host: we appreciate you watching and calling and. any comment for that caller? guest: this is a time when people in congress are talking more seriously about reducing the deficit and getting rid of fraud. the caller was talking about -- whether they can follow through on that goal is a question.
i would advise the caller to keep paying attention and see what is something he likes comes out of this. host: you have been writing about taxes for five years. third we always seem to focus on the out years when it comes to a lot of these issues. do the out years ever, about where does policy could change before any real cuts are made? guest: so they are delaying the pain and will come back. that has occurred with the doc fix. back in the 1990's, they reduce payments to doctors through
medicare and decided that wasn't such a good idea after the doctors said they did not like that. every year or every two years they do a doc fix to make sure the doctors get paid. they do not do that personally but on a year by year basis because it looks better that way or maybe they feel one day there will be a long-term solution that threads of the needle. they have been able to reduce the deficits. tax increases have been able to stick around for a while. may be a democrat will pass a tax increase and then 15 years later a republican will cut it again. host: rachel in texas.
caller: hello. i have two questions to ask. the expense it cost them to move overseas? can that be used as a deductible? our representatives are part of the 47%. what does that cost the taxpayers in taxes? what part of our taxes is paid in their insurance? guest: the answer to the first question is that businesses are supposed to deduct all other expenses and that could include closing down a factory and opening up a factory overseas.
it will include anything. so democrats have proposed a little change to the tax law which would prevent companies from being able to do that but it would raise that much money, unfortunately. i'm sorry about the other question about health insurance for lawmakers. host: thomas in winter park, florida. caller: good morning. thank you for taking my call. the current tax code is a descendant of the 16th amendment which says that congress should have the power to lay and collect taxes. if we eliminated the holding period for the sale of a capital asset, what do you think
that would provide in terms of a taxable amount? guest: if we eliminated the holding period -- and you talk about mark to market taxation? host: i you still on the line -- are you still on the line? caller: the capital asset issue has been dealt with almost 30 times. whenever the government has decided it needs more money, it would reduce the holding period and/or reduce the taxation on the long-term or short-term tax rate. if a capital asset is not exposed to end unnecessary holding period to sell it for
profit that the revenue generated moving consistent with the 16th amendment would expand that taxable base. host: why are you so concerned about this issue? caller: if we go back to the wording of the 16th amendment and eliminate every single deductions and exemptions and adhere to the wording of the 16th amendment, congress has the power to lay taxes, the tax base would be so huge that some of us believe a single digit flat tax would generate enough revenue to pay the current budget and pay off the debt.
guest: i think he was talking about burning the tax base and getting rid of deductions and credits. then you could lower the rate with the revenue you get from doing bad. that is known as tax reform. they are talking about that now and republicans really want to do that next year. it could maybe improve their brand a little bit. they would rather be known as the tax reform party. keep watching and maybe something will happen. it is hard to get rid of any credit or deduction. the broad public likes the mortgage interest deduction. host: there has been talked
about a grand scheme and big plan. it is december 6 today. guest: they are still talking about it. i think businesses want it. that's one thing i get from the meeting yesterday. if you raise taxes, let's go all the way. republicans will agree to tax increases if they get spending cuts. they haven't done a tax increase in so long, almost any significant tax increase is a pretty grand achievement. host: george from maryland on
the democrat line. caller: i notice that in the president's offer, he included depreciation as one of the extenders and i wanted to ask what that is and how works. guest: forget what i was saying before about the 15-year recovery period versus 39 years. you can deduct everything in the first year. it is valuable to businesses. it has been around over the last decade. you'll get to deduct 50% of what you purchase any given year or it is pushed up to 100%. i'm not sure if obama is planning to extend that into
next year. i think it might be 50%. caller: good morning. first-time caller. i would like to say, from the previous caller, the purse strings are embedded so tight with big business basically in the business of raising funds and creating wealth for themselves and their cronies. we have no representation. when you have got large money available, there is a lot of
opportunity for corruption or for people to benefit. and our tax codes are a prime example of that. the tax system could be simplified. it could be much more equitable, much fairer. that is a problem with the taxes. it is totally part of the corrupt system we deal with in our government. guest: this is a good time to talk about this wide perception that the tax code is unfair and riddled with loopholes and working for other people, but not for me, not for us. this is an interesting time because they're getting more serious about tax reform.
a lot people are starting to focus on the tax breaks they do not want to get rid of. they have been for tax reform for a long time, but now they're saying, wait a second, i want to keep my deduction i get for mortgages. i do not want to pay taxes on the health care benefits i get. those are the largest tax breaks in the code. everything is almost small change compared to that. people are serious about limiting tax breaks and raising revenue, but those are the costliest aspects and they benefit most everybody. host: a tweet, can you explain the vat tax? guest: i do not know if i can explain it in detail.
it is a tax that is applied not just on the final sale. the person is right that almost every country has a vat tax and is generally seen by economists as less damaging to the economy as an income-tax. it is also more regressive. it can be applied to things like food. it hits lower and middle income people more than upper income people. that is why democrats here did not want to adopt it, even though it is a pretty good way of raising revenue. host: sam goldfarb, if you had to predict what will happen between now and the end of the year? guest: i'm feeling as of yesterday that they are very close.
[laughter] host: congress went home yesterday. guest: the people who matter are still there. the aides to boehner and obama are still there. there are times that though even this week that they will get frustrated and stop talking to each other. i'm not sure if they're talking today or taking the day off. obama said yesterday that this could get done in about a week. i think he might be right. republicans see the writing on the wall when it comes to tax increases. what they're interested in now is making sure they get spending cuts to go along with the tax increases. when obama put his additional offer, he said $1.60 trillion in tax increases and we will delay the spending cuts until
next year. that was the initial offer. republicans want to make sure that the spending cuts go up and become more immediate. considering that obama has been open to spending cuts in previous negotiations and says he is open to it now and republicans have changed from where they were a year ago when it comes to tax increases, i think it will not take too much to get there, although there are still obstacles. host: the $1.60 trillion and $800 billion are the opening numbers. where are we with those numbers now? have those numbers been altered? guest: i do not know if republicans have gone above $800. the question will be, will obama be able to get above $800.
once you start talking about the $1 trillion number, that is a politically sensitive number. obama might want to get above $1 trillion. republicans will want to keep it below $1 to win. host: are the senate ways and means and finance committees involved in these discussions? guest: sam bachus, the ways and means chairman, they're keeping in touch. their staff are very involved, because they're the guys who know all about taxes. they are definitely going to be involved in negotiations, even if they are slightly not in the heart of it, which is boehner
and obama. host: robert, good morning. line for democrats. caller: our economy is very fragile. a lot of the things the people in this country, the millionaires and billionaires have forgotten is the fact that if it were not for the tax payers, the infrastructure we put in place, to do business here, like good roads and power grids and bridges -- the list goes on. we the taxpayers are the ones who put this in place for them to make their millions and billions. i do not think it is wrong for everybody, including working class people, to pay their fair share. i think it is the right things that we have to do to dig in and bail this country out.
guest: that is a good point. you just made the connection between the taxes we pay and what we get in return. one thing but a lot of people talk about is that in this country, sometimes people -- it is hard to make that connection. a lot of money we pay goes to the military, which maybe you're not involved in, or to seniors. maybe we're not there yet. we're paying a lot of money. we're not sure what we're getting back in return, and that is why perhaps the united states has this anti-tax mood. but if you're making the connections you are making, you will be more willing to pay money to the government because you see maybe what you're getting back. host: james tweets in, the visibility of the sales tax would force the government to shape up. the vat tax wouldn't hold
government to a tighter belt. guest: if you eliminate all deductions, a lot people would not necessarily have to see their taxes go up if you also lower tax rates and you can make a simpler tax code. a lot people are in favor of that. on the other hand, a lot of people think that it is good to encourage home ownership. it is good to make sure that employers are providing health insurance and that is not being taxed, and if people are paying their state and local taxes, we should give them a break and not tax that. they're definitely reasons and rationales behind the biggest tax breaks. host: laura tweeted in, raise
everyone's rates a little rather than some a lot. next call, carl from kansas, line for independents. caller: i think we need to quit worrying about the taxes and go for welfare reform. i know a lady here in kansas who has three kids. all her food, doctor bills, prescriptions -- she doesn't pay any taxes. how does she get money back? guest: if you are not working, you're not going to be paying payroll taxes, be paying income taxes if you're not getting money. and then you might get some welfare. and that is the way our system
works, i guess people might think that would be cruel to completely get rid of for welfare because, what would happen to that woman? on the other hand, a lot of people, more conservative people think that something like welfare discourages work. european countries spend more on anti-poverty programs than we do. we still do have some anti- poverty programs. host: a tweet, what happened to the financial transaction tax? guest: it is popular among liberals and more popular in europe, although they have not adopted, i think, what a lot progressives would want. the idea there is that you -- a transaction where you are
buying and selling stock, and the idea that you could raise a lot of revenue and decrease speculative bets in the market. timothy geithner said that it would hurt the capital markets other would-be countries who would not have a financial transaction tax and the financial industry would move to bermuda. host: republican line. caller: why do you think the republicans should trust anything democrats agreed to when we have had a history going back to george h. w. bush where he promised to raise taxes, and the democrats were going to lower -- cut spending
$2 for every dollar that he raised? what happened, he had said, read my lips, no new taxes. when he agree to do this, the democrats piled on. why in the world should they trust anything the democrats promise as far as spending cuts are concerned? guest: let's go back to the earlier question, do they live up to the deficit-reduction laws they have passed. it is true they sometimes pass spending cuts and then reverse them. it kind of works on both sides, but i suppose why should republicans trust democrats?
democrats also did not know if they should trust republicans. that is why we're in a little bit of a gridlock here. host: we began our conversation with sam goldfarb of cq roll call by talking about so-called tax extenders. a quick definition? guest: temporary tax breaks usually directed to the small type of business. host: the finance committee passed the bill but it has gone nowhere, he said. congressional research service says these are some of the tax extenders and their cost. research and experimentation, $14 billion. income exceptions for multinationals, $11 billion. accelerated property write-offs
for restaurants, retail and leasing, $3.7 billion. deductions for state and local taxes, $4.4 billion. teacher deduction for certain school supplies, $460 million. those are the tax extenders that are still out there. about 80-some tax extenders. that is how we began our conversation with sam goldfarb. peggy in columbia, maryland. democrat. caller: i have a question for mr. goldfarb. i have not heard anyone address this so far on your show, and that is the proposition of letting the fiscal cliff expire, go down the fiscal cliff
for tax rates, and adjust the taxes for the 98% through the rebate process. and this could be available for anyone, any president. let the bush tax rates apply as a ceiling, and then apply the rebate process to control the 98%. host: why do you propose that? what is the advantage in your view? caller: because the executive branch, the president, whoever it is, would have the ability to adjust the tax effectively for anyone who falls below the clintons' ceiling, and they
could do this anytime. they would not have to go back to congress. guest: it is true that technically the administration can do some things without even the congress's approval, but it would not be a lasting solution. let's say you could freeze the amount of withholding that you pay at the level it was this year, for the 98%, and increase withholdings for everyone else as the law would dictate if you went over the cliff. but the 98%, if they did not actually pass a law to extend the tax cuts for that portion of the population, we would end up having to pay a huge check in 2014 because it would have
been under withheld in 2013. there are some things the administration can do, and that has been discussed. the impact of the fiscal cliff, if we go over it, technically -- they have shown no indication that they want to do that, because it gives them leverage in current negotiations to say, we really are going to face a tax increase next year, and it is the republican's fault. host: a tweet, would a flat tax take a disproportionate amount of poor people's incomes? guest: the proponents of a flat tax say it is simple and fair, and critics point out that it is not fair for low income people to be paying at the same rate as people who have millions
and millions of dollars. host: right wing tweets in, why do i have to pay taxes multiple times on the same money as capital gains? guest: there is a better argument with dividends, those profits are distributed to shareholders and taxed again. that is double taxed. capital gains are more iffy. let's talk about dividends. we've always had a corporate tax. every country has had a corporate tax. people think instinctively there should be a corporate tax. it is a little unclear, people think, that if you're clear on your monitor dividends and not
through wages and dividends were not taxed, mitt romney would have a 0% tax rate and people would think that was strange. host: when you were watching that back-and-forth, was that a legitimate argument? guest: sometimes corporations do not pay tax because they have not made a lot of money. unlike people, a business can have a loss for a year and then they're not going to be taxed. it might not be entirely enlightening conversation, but it is true that we do have a corporate tax. the tax rate is supposed to be 35%. a lot of corporations pay lower
than that either for legitimate reasons or because there are very good at shifting their profits around the world. considering that they might be finding these loopholes in the law, that strikes people as unfair, and any attention given to that is probably pretty -- host: derek on our line for independents. caller: one question, made a comment, saying the world is complex and the tax code is complex. where did you get that? guest: in my head. the complicated answer will be a lot more complicated than that. a large portion of the tax code is not because of tax breaks. try to define income.
income can come in so many different forms. different types of businesses in particular are different to -- subject to different tax rates. host: what is your followup? caller: that is your own personal thought about it? guest: yes. caller: don't ever say that statement again. it is so far from the truth. since 1986, when we have tax reform, 15,000 changes to the tax system. here is an example. obamacare, our senator here
voted for that very enthusiastically. what came out of that 15,000 page affordable care act? she is up for reelection, the first thing, she is bipartisan, they're going to stick it to washington and try going to try to get that thing out of there. it all comes down to whoever supports them. they have to go to bat for them. they voted for something, now they're going back to the medical device industry because that is her doing her job. guest: i would like to make a
distinction between that there are a lot of these special giveaways in the tax code. a lot of them. there might not be the greatest justification for them. i am making a technical point between the tax breaks and the size of the tax code and the complexity. it is true that some tax cuts will make the tax code more complex, but there are more aspects of the tax law that make it so complicated. host: mary in wisconsin, republican. caller: how many supporters have there been in the polls? if you're not paying federal income tax, you can say you cannot vote, but they need to revisit this issue.
the majority of the people that supported obama probably do not pay federal income tax, but they're telling him what to do. this does not seem fair. people that work hard should not have to give it to people who are sitting at home, collecting our tax money that we are paying into. something needs to be done about that. guest: this is a debate that happened during election to be sure. romney's comments that 47% of the population did not pay income tax, and then it was pointed out that many of these people are retirees, some of them are soldiers fighting overseas. it is true that some people who did not make a lot of money do not owe income tax, in part because they get tax credits like the earned income tax credit, which outweighs the tax liability they have. even the poor, they pay a percentage of their income and
payroll taxes. if you only look at income taxes, under a lot of people who do not pay income taxes, but almost everybody pays a lot of money in payroll taxes and sales taxes and state and local taxes and property taxes. it adds up even if they're not paying income tax. host: how would you compare the current talks to july 2011 and the debt limit, fiscal cliff, sequestration -- guest: the debt limit talks definitely set the stage for this. they were not completely without value. i get the sense it is a lot more serious now. it has almost been like a year- and-a-half long negotiation. with the real deadline being the expiration of the bush tax cuts at the end of this year.
to some extent, now they're getting to the real deadline and it is more serious. host: have you written one of the, if we go over the cliff, this is what happens-type article? guest: yes. people would probably start feeling it in their paychecks pretty quickly. never mind what it means to the broader economy. it will hit. it will hurt a lot of people. if we did not change the law and it went one month, two months, three months, it could lead to another recession because there be such a sharp drop in people's incomes and it would be spending less. that would not be good for businesses. i do not think that is going to happen. host: caller, last word with sam goldfarb.
caller: i called social security the other day. the maximum amount the beneficiarycan receive is $2,000 approximately. four years ago, i am looking at, how much can i really get out of social security? when i look at the paperwork that is sent out every year, it says if you earn over this much, you get taxed that much, you can only earn as much as you get a dollar deducted for every dollar -- very confusing. how does that work?
guest: i'm not sure i can speak your specific problem. it is true that you should get the best financial advice that you can get. the federal and state laws can be confusing. contact a professional if you can. host: right wing tweets, why isn't there an amt for mega- corporations? guest: in terms of the amt, i think there is a business amt. i'm not sure what sort of business impact this has. in terms of the $11 billion tax extender, it gets a little extender, it gets a little complicated, but